In this blog, I’m continuing my talk with entrepreneur Philip Rosedale, who explains the “secret sauce” of Silicon Valley — unveiling why Silicon Valley is such a hotbed of entrepreneurship.
I was interviewing Philip Rosedale, creator of the platforms Second Life and Coffee and Power, at Singularity University when he asked such a powerful and provocative question, that it launched me into a brand-new conversation with him. It is so important that I’m dedicating this entire blog to his answers.
His question: “Why does Silicon Valley have more successful software startups than anywhere else in the world? Are people just smarter here?”
After a short pause, Rosedale continued: “I don’t really believe that entrepreneurs are smarter in Silicon Valley, that we were genetically different or anything. San Francisco’s a tremendous melting pot of people from different areas. But I have been struck by the observation that in other countries the rate of success is much lower and that there’s a very low degree of sharing of ideas.”
“In Silicon Valley, you might think that people’s willingness and desire to exchange little pieces of information about what they’re doing carries more risk than benefit,” Rosedale said. “But if you added up their interactions overall, you’d see that there is a huge benefit to exchanging ideas. Ultimately it fuels more innovation and productivity here in Silicon Valley, in San Francisco, than anywhere else in the world,” he said.
In other parts of the world, Rosedale believes, “this lack of sharing might be driven simply by the fact that there aren’t enough people of the same ilk. There aren’t enough technical people running into each other in coffee shops colliding, if you will,” he said. “But culturally, just about everywhere other than in Northern California, people are very unwilling to share information with each other.”
“I’ve thought about that a lot,” Rosedale said. “As Second Life became famous, I got to travel around the world. Being an entrepreneur and an engineering person I was really interested in that fundamental question, which always struck me as a kind of funny cocktail-party conversation, since I don’t mind not pissing people off. When I was bored at cocktail parties, if I was in Europe, I’d bring out the question, ‘Why is it that you Europeans basically make no software and you’re all smarter than us?’ In Europe people are incredibly smart. They’re super effective. They can do all kinds of cool stuff. Why is that happening? And same thing in Asia,” he said.
“And then, moreover, in the United States, it’s not the whole United States that makes software — it’s just right here in Silicon Valley,” Rosedale said. “There’s really a lot more software that’s made here than anywhere else in the world. Why is that?”
Rosedale went on. “I had to give a talk at a great conference, called Big Omaha, which is a big get-together of entrepreneurs and mostly software tech people in Omaha, Nebraska. It gathers together people from that part of the country — Omaha, Des Moines — and I did this graph where I took Google Maps and I drew these circles, which were the area where 100,000 people lived superimposed on a map of each of these areas,” Rosedale said.
“I did Des Moines and I did Omaha and I did New York, Los Angeles, San Francisco and other places. On the map was a random scatter chart of red dots, and each red dot was a technical co-founder,” he said. “We got that data from LinkedIn. Now, LinkedIn has searches where you can basically ask how many people in an area say something on their résumé like ‘technical founder,’ ‘co-founder.’ So you can count how many technical founders are in that area per 100,000 residents. And guess what? In Omaha and in most cities in the United States, that number is somewhere between 20 and 30 per 100,000 people,” he said.
“In New York the number is 51, but in San Francisco the number is about 340. It’s the classic thing we all look forward together here: It’s an order of magnitude higher. And the scatter chart looks like a shotgun shell loaded onto a map of San Francisco,” Rosedale said. “The point I was trying to make with the map was that if you’re going to work on a software project, it’s going to fail. The probability of startups succeeding is 10 percent, unless pigs fly and some statistics are radically changed,” he said.
“Your project is going to fail with a 90 percent change of probability,” Rosedale said. “It’s going to fail in about one year. So now the question is: what happens next? The graph pretty well illustrates it visually. As I said, out there in Omaha you’re not going to live through the winter. You’re 24 years old. You saved up a little bit of money. You’re not going to make it. You’re going to have to go back and live at home or something, which is pretty depressing. In San Francisco, you’re going to get another job in two weeks because it’s an order of magnitude difference,” Rosedale said. “You’re going to walk into a bar in the Mission in San Francisco and you’re going to run into the person who’s either going to hire you, co-found something with you next, or fund you.”
Because of this density of founders in Silicon Valley, people feel safe to try all sorts of projects, because if they fail they can move on to the next project. In fact, in Silicon Valley, people value failure as having trained them in that experience. “We’re culturally tolerant of it,” Rosedale said. “We have an amazing tolerance of it. It’s not so much that the Bay Area breeds or attracts people who are uniquely insane, who are willing to take on this level of risk. It’s actually that, for the most part, for even the craziest among us, even if these really crazy ideas fail, you know you’re not going to starve to death. You’re not going to be completely desolate.”
Rosedale put it another way: “We huddle. We’re herd animals. We come here and we seek each other’s warmth and that works. We’re also, I believe, safe here. When you’re safe, it makes your more open and friendly. When you’re open and friendly, you share things with each other, like how to set up a server or how to get somebody who knows a lot of social media marketing stuff or how to find a developer. You share that information freely with each other,” he said.
“Even if you don’t share very much — and my hypothesis from studying this behaviorally is that actually we don’t do that much here — but that little bit that we do share in Silicon Valley adds up to a lot,” Rosedale said. “If you have a good idea in Lisbon, Portugal, if you have a good idea in Paris, France, you hide it from everyone else, right? You hide it from everyone else because it’s a precious gem and if that idea works, you’ll be successful. So what’s happening in San Francisco is, you have these strange confluences of people driven by the fact that people are both engaging in lot of projects and then willing to share and talk about them,” he said.
The implications of that have powered his new business.
“One of the things I’m fascinated by is the question of whether with Coffee and Power ([the name of Philip's newest company] we could build an app that will get you to do that anywhere.” Rosedale said. “Could we get people to connect at this level even in Omaha?” In other words, due to the density, or lack of it, in places such as Omaha, you’re looking to connect but not only with 20 people within its population of 100,000 — with Coffee and Power you’re connected to thousands of people around the world. “On top of that,” Rosedale said, “what if I can make it so that the 50 people at a time who are looking for team members in Omaha can find them? You can kind of see them if they’re near you. You can shrink the geography,” he said.
“I think the most important thing is not just finding them or talking to them. It’s not enough actually to break the ice, but what if you could see a bunch of little short statements about what they were doing yesterday and what they’re doing right now?”
In my next blog, I’ll talk to the CEO of TopCoder — the newest way to write software fast and cheap.
NOTE: Over the next year, I’m embarking on a BOLD mission — to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates’ personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world’s grand challenges to create a world of Abundance. I’m going to write this book and share it with you every week through a series of blog posts. Each step of the way, I’ll ask for your input and feedback. Top contributors will be credited within the book as a special “thank you,” and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.